Without Building A Thing, Pyramid Gets Tax Breaks

The Pyramid Cos. warned Syracuse politicians in 2001 that without Empire Zone tax breaks it would not transform the Carousel Center mall into Destiny USA, a $1.7 billion resort.

In the five years since, not a single beam, block or 2-by-4 has been erected for Destiny USA.

Yet Pyramid founder Robert Congel and his partners are already claiming Empire Zone tax breaks worth $7 million per year.

The 40,000 new Destiny jobs Pyramid predicted don’t exist. But New York taxpayers reimbursed Pyramid for its Carousel Center property taxes in 2004 and 2005.

And it can continue to claim these tax breaks through 2015.

Sixty-seven miles to the north, a similar scene is playing out.

Congel’s son, Scott Congel, announced in 2003 that a Pyramid partnership was planning a $170 million expansion of its Watertown mall. The project would create 3,000 new jobs, he predicted.

But Scott Congel told Watertown officials that before Pyramid could turn the Salmon Run Mall into an international tourist destination — with a convention center, hotel, golf course and housing — they had to put Salmon Run in an Empire Zone.

Today, the Salmon Run Mall looks essentially the same. There’s no convention center. No hotel. No golf course.

“None of it took place,” said Peter Clough, a Watertown councilman and chairman of the Watertown Empire Zone board.

Still, New York taxpayers are paying Congel and his partners at Salmon Run $1 million per year in zone benefits.

In all, Pyramid partnerships are claiming $9 million per year in Empire Zone tax breaks for three malls —Carousel Center, Salmon Run and Riverside Center in Utica.

Partners that include Robert and Scott Congel also claim $15,500 per year in zone credits for a new hotel next to Pyramid’s Hudson Valley Mall in Kingston.

Pyramid officials defend the tax breaks this way: Congel and his partners have spent far more — $215 million planning Destiny USA and $22 million on improving the Watertown and Utica malls — than they’ve received in Empire Zone benefits.

The Carousel Center expansion, promised since 1998, has been delayed in part by disputes over local taxes and financing, and the developer’s evolving vision for the plan. Pyramid officials say Congel remains committed to the project.

Tied to Destiny

The Empire Zone program, created by the Legislature and Gov. George Pataki in 2000, was designed to reward businesses with tax breaks after they moved to the area, added jobs or expanded.

Across New York, hundreds of businesses took advantage of the program’s loose rules to capture lucrative tax breaks without creating many jobs. The program’s cost jumped from $30 million in 2000 to a projected $546 million in 2006.

State leaders fixed some of the problems by 2005, but the stricter rules do not apply to more than 9,000 businesses already in the program, including the three Pyramid malls.

In early 2002, Destiny USA chief executive officer Michael Lorenz gave Syracuse Common Council and the Onondaga County Legislature an ultimatum.

If the politicians didn’t put the then-12-year-old Carousel Center and the surrounding Destiny USA acreage into an Empire Zone, Pyramid would walk away from the $1.7 billion project, Lorenz said.

The council voted 9-0 to approve zone status. The legislature approved it 17 to 1, with only Lovey Winslow voting no.

Syracuse zone coordinator Marge Simcuski said the city approved the mall because Destiny USA was coming.

“There wasn’t any other proposed development that came to the city or county that came anywhere close to this,” she said.

In its one-page zone application for Carousel Center Co. LP, Pyramid projected it would hire three new workers in the next two years.

That was enough. Under the state’s loose rules, Carousel Center only had to hire one new worker for Congel and his partners to collect a full refund of the mall’s property taxes for 10 years, said Jessica Copen, a state Department of Economic Development spokeswoman.

Even if Carousel Center is never expanded and the thousands of Destiny USA jobs never happen, Congel and his partners are still entitled to the tax break, Copen said.

Syracuse Councilor Stephanie Miner, a critic of the Destiny USA deal, said that shows how flawed New York’s economic development policies are.

“There is no relationship between the lucrative benefits Pyramid gets and the benefits the community receives in exchange,” Miner said. “We have the same mall now that we had before they were getting Empire Zone credits.”

“This community has been taken for a long ride on this thing,” he said. “Quite frankly, I thought that if the state creates a special incentive for businesses to expand and create new jobs, that if they don’t expand or create new jobs, I assumed the state would make sure they got no tax credits.”

No breaks for other malls

Carousel Center’s competition has to get by without these tax breaks.

The owners of Shoppingtown in DeWitt don’t receive zone benefits. At Great Northern Mall in Clay, only a Dick’s Sporting Goods store is collecting zone benefits.

Farther out, near Rochester, two malls owned until last year by the Wilmorite group receive more than $1 million a year in zone credits.

Only two zone businesses in New York state — both power companies — are getting bigger property tax refunds than Carousel Center.

Syracuse manufacturers that employ thousands of workers in high-paying jobs — such as New Process Gear in DeWitt and Lockheed Martin in Salina — collect millions of dollars less in zone benefits than the mall.

Destiny USA spokesman David Aitken said the mall developer deserves the tax breaks for Carousel Center because it has hired people and spent $215 million planning Destiny in the last four years.

Aitken said he could not predict when the mall expansion will begin.

He noted that Congel agreed this year to pay $60 million in project fees, which Syracuse and Onondaga County can keep if Destiny is not built.

Corporating shuffle

Carousel Center opened in 1990. Twelve years later, when it applied for Empire Zone status, Carousel Center Co. LP claimed it had zero employees.

The partnership claimed 107 workers in 2005. Aitken said that number includes executives, such as himself, and the untrained workers Destiny hired at $60,000 a year then laid off months later when the project got sidetracked again.

The Pyramid partnership called Carousel Center Co. LP was formed years before it applied for zone benefits. Because it had no employees in 2002, it gets treated like a new business under the Empire Zone rules. If it hired just one worker, it’s entitled to a 100-percent refund on its property taxes.

The Pyramid partnerships that own Salmon Run Mall in Watertown and the Riverside Center in Utica both reincorporated under new names to become eligible for the maximum benefits, said Michael Bovalino, the CEO of Pyramid Management Group. The legal practice of companies’ changing their identities to appear new is known as “shirt-changing.”

“This is clearly a vestige of an unfortunate loophole,” said R. Michael N’Dolo of Canoin Associates, a Saratoga firm that Watertown hired to help run its Empire Zone.

Twenty-seven Carousel Center and Destiny entities applied for Empire Zone status in 2002, seven days before tougher rules went into effect to begin to close the “shirt changer” loophole.

All the Destiny companies — with such hopeful-sounding names as “Destiny USA Tourism” and “Destiny USA Golf” — fall under the old law. By hiring one worker, each can get state taxpayers to reimburse the company for its property taxes for a decade. These Destiny companies have not hired workers or claimed Empire Zone tax breaks, Aitken said.

Pyramid’s leases generally require its tenants to pay the mall owner prorated shares of the property taxes. Aitken would not say whether Carousel Center’s partners have shared any of the $7 million-a-year Empire Zone property tax refund with the tenants.

Salmon Run survives

The Watertown Empire Zone board talked in 2005 about asking the state to drop Salmon Run as a zone business because it didn’t expand as promised, Clough said.

It didn’t take that step.

New York has not decertified any businesses for failing to fulfill their promised job creation or investment, said Copen, the state Department of Economic Development spokeswoman.

The Salmon Run project was scrapped because the mall encountered new competition, Bovalino said.

He said Salmon Run’s partners have spent $13 million renovating the Watertown mall since 2003, adding about 50,000 square feet. Three stores — Best Buy, Gander Mountain and Dick’s Sporting Goods — moved in.

Salmon Run claimed four workers earning an average of $15,878 in 2005. Bovalino said its tenants employ 225 more workers today than in 2003.

After Utica officials made Riverside an Empire Zone business, Riverside hired one employee who earned $11,364 in 2003.

Riverside has been turned from an enclosed mall to a strip center with a Wal-Mart, BJ’s Warehouse and Lowe’s. Its eight movie theaters closed in 2005. Montgomery Ward, Old Navy, OfficeMax and Radio Shack recently left, too. They’ve been replaced by a Linens & Things, a Tractor Supply Co. and Steve & Barry’s.

Bovalino said Riverside’s partners spent nearly $9 million renovating the strip center in the past three years. Tenants have added 250 employees since 2002, he said. Mike McAndrew can be reached at mmcandrew@syracuse.com or 470-3016. Data editor Jeff Rea contributed to this report.